Cost Segregation on a $250K Rental Property: $40,000 in Accelerated Depreciation

A $250K single-family rental sits at the lower end of cost segregation viability, but the accelerated depreciation still produces meaningful first-year tax savings.

$40,000 Accelerated Depreciation

$14,800 Est. Year-1 Tax Savings

19x Return on Study Cost

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Property Type

Purchase Price

$14,800

Estimated Year-1 Tax Savings

$40,000

Accelerated Deductions

$795

Study Cost

19x

ROI on Study

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Estimates are for illustration only. Details

What This Means for a $250,000 Rental Property

$250,000 Rental Property property — cost segregation depreciation example

On a $250K single-family rental, roughly 80% of the purchase price — $200,000 — constitutes the depreciable basis after excluding land. Under the default 27.5-year MACRS schedule, that basis generates only $7,273 in annual depreciation. A cost segregation study reclassifies a portion of that basis into 5-year, 7-year, and 15-year property classes, accelerating $40,000 into the current tax year.

With 100% bonus depreciation permanently restored under the One Big Beautiful Bill Act (July 2025), the entire $40,000 in reclassified components is deductible in year one. At a 37% marginal federal rate, that produces $14,800 in tax savings against a study cost of $795 — a 19x return. Results vary based on the property's age, renovation history, and local construction costs.

For long-term rental investors, the passive activity loss rules apply. If your modified AGI is under $100,000, you may deduct up to $25,000 in passive rental losses against ordinary income. Above $150,000 AGI, the accelerated depreciation creates suspended losses that carry forward — offsetting future rental income or released in full upon disposition of the property.

MACRS Depreciation Breakdown

Accelerated Depreciation by MACRS Class

$40,000 total reclassified into shorter recovery periods

5-Year Property $24,000

60%

7-Year Property $4,000

10%

15-Year Property $12,000

30%

Estimated Year-1 Tax Savings $14,800

Illustrative estimate. Final allocations vary based on property facts and report findings.

Method

Year-1 Deduction

Difference

Standard (27.5yr straight-line)

$7,273

—

With Cost Segregation + Bonus

$40,000

+$32,727

Estimated deduction based on typical cost segregation allocations for rental property properties. Actual study results may vary based on property-specific analysis including age, condition, renovations, and local construction costs.

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Why Cost Segregation Works for Rental Properties

Even unfurnished rental properties contain significant depreciable components that qualify for shorter MACRS recovery periods. Cabinetry, countertops, appliances, carpet and vinyl flooring, decorative lighting fixtures, and bathroom vanities are classified as 5-year property. Dedicated HVAC equipment, water heaters, and certain electrical systems fall into the 7-year class.

Land improvements make up the 15-year MACRS class: driveways, sidewalks, fencing, landscaping, irrigation systems, and exterior lighting. These are standard features of any rental property, yet under straight-line depreciation they would be spread over the full 27.5-year schedule.

With 100% bonus depreciation, the entire reclassified amount is deductible in year one. For long-term rental investors, the passive activity loss rules apply: deductions can offset passive rental income, and if your AGI is under $150K, up to $25K can offset ordinary income. Investors who qualify as Real Estate Professionals (750+ hours/year in real estate) can deduct without passive loss limitations.

Who This Example Applies To

Single-family rental property investors
Buy-and-hold landlords in any tax bracket above 24%
Portfolio investors looking to shelter rental income across multiple properties
Investors building toward Real Estate Professional status

Long-term rental depreciation is classified as passive. If your AGI exceeds $150K and you do not qualify as a Real Estate Professional, accelerated deductions carry forward as suspended passive losses until you generate passive income or sell the property. Actual results vary based on property age, condition, and local construction costs.

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Compare: Rental Property at Different Price Points

Price	Accelerated	Tax Savings	Study Cost	ROI
$300K	$48,000	$17,760	$795	22x
$500K	$80,000	$29,600	$795	37x
$750K	$120,000	$44,400	$795	56x
$400K	$64,000	$23,680	$795	30x
$600K	$96,000	$35,520	$795	45x
$1M	$160,000	$59,200	$1,195	50x
$250K	$40,000	$14,800	$795	19x
$550K	$88,000	$32,560	$795	41x
$900K	$144,000	$53,280	$795	67x
$1.2M	$192,000	$71,040	$1,195	59x
$1.5M	$240,000	$88,800	$1,195	74x

Frequently Asked Questions

What is a cost segregation study? ▼

A cost segregation study is an engineering-based analysis that reclassifies components of your property into shorter IRS depreciation categories (5, 7, and 15 years) instead of the default 27.5 or 39 years. This accelerates your depreciation deductions, reducing your tax bill in the early years of ownership.

Can I use cost segregation deductions against my W-2 income? ▼

For long-term rentals, depreciation deductions are generally passive and can only offset passive income. However, there are two key exceptions: (1) if your AGI is under $150K, you can deduct up to $25K in passive losses against ordinary income, and (2) if you qualify as a Real Estate Professional (750+ hours/year in real estate), all rental income becomes non-passive. STR owners who materially participate can deduct against W-2 income regardless.

How long does a cost segregation study take? ▼

Our studies are delivered in 3-5 business days. You provide the property address, purchase price, and closing date — we handle everything else using assessor records, satellite imagery, and construction cost databases. No site visit or tenant disruption required.